[MARKET ANALYSIS] DXY steady despite higher energy prices, with focus on Trump mulling a strike on Iran before the midterms

G10s are mixed against the USD; the Loonie holds towards the top of the pile, given the bid in energy benchmarks, whilst the JPY lags on widening yield differentials. Oil prices have taken another leg higher following reports that President Trump could strike Iran before the midterms; moreover, a hurricane in the Gulf of Mexico has led to supply disruptions in the region. (Please see commodities for details) DXY is essentially flat and trades within a narrow 102.13 to 102.39 range. Rangebound trade which comes despite elevated energy prices and uneventful FOMC Minutes. One key comment from within the release highlighted the board’s hawkish skew: “Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year-end”. But overall, a release which did not add much to what was already known. From a monetary policy perspective, focus will turn to US CPI next week, where a hawkish release could see rate hike bets increase heading into the Fed policy decision later this month. For reference, as it stands, markets assign only a c. 20% chance of a hike in October. The US data docket is fairly light for the remainder of the day, aside from Jobless Claims, which is expected at 200k (prev. 197k). Most recently, the Fed’s Waller provided some hawkish-leaning comments. He mentioned that more rate hikes are likely needed to tame inflation, but there is flexibility over the pace, and hikes do not need to be consecutive. This spurred some initial two-way action, before the index climbed higher, but remained within earlier ranges. EUR is essentially flat this morning, and holds near recent lows just shy of the 1.12 mark. Political updates have taken a breather this morning, but still remain a key theme in the region. Germany’s coalition meeting took place in the prior session, which did not yield any significant progress, but perhaps more pertinently, a major breakdown from the coalition has to have occurred. Over in France, the OAT-Bund spread remains elevated at 142bps - with eyes now on October 13th for the start of the budget debate. Politics aside, EU-China trade relations have been shaken in recent days after reports that the EU is to impose a temporary import ban on Chinese hybrid EVs. EU Trade Commissioner Sefcovic is currently in China and is set to hold meetings with the Chinese Commerce Minister in hopes of easing tensions. Notable talking points will be on addressing the massive trade deficit with China and discussions on critical minerals.